The Corona Clause

An article in the FT reports that private-equity backed packaging manufacturer Pacur recently executed a loan document with a novel concept: the “corona clause.” This term would allow the company to add back estimates of revenue that would have been realized in the absence of the virus.

Previously loan documents included language allowing them to add back profits lost to “extraordinary, unusual, infrequently occurring or nonrecurring loss, charge or expense,” but this takes it much further. The ability to add back estimates of revenue that would have otherwise been recognized provides far greater flexibility, and makes it far more difficult for the company to default. Ultimately this would make recovery a greater challenge for debt investors.

(Note: The documents do not reference the virus itself, but the author believes that the virus-related crisis is why the language was drafted.)

Click on the link below for an interesting read.

cov-lite debt
Source: Joe Rennison | "‘Corona clause’ creeps into businesses’ loan documents" | The Financial Times | 03/17/2020 | Visit